IRS changes maximum-vehicle-value rule

The IRS intends to revise its regulations to make them consistent with the recent statutory changes to the automobile price inflation adjustment in Sec. 280F(d)(7), which affect the vehicle value that applies when valuing employees’ personal use of employer-provided vehicles (Notice 2019-34). The maximum amount now provided by regulation is $16,500 and is annually adjusted for inflation. The IRS intends to amend the regulations to provide a maximum value of $50,000, as adjusted under Sec. 280F(d)(7). For 2019, the inflation-adjusted amount is $50,400.

When an employer provides an employee with a vehicle that the employee can drive for personal use, the employee must include the value of the personal use in his or her income. There are two methods permitted to calculate the value of an employee’s personal use of an employer-provided vehicle (as long as certain requirements are met): the cents-per-mile rule and the fleet-average-valuation rule (FAVR). These methods are not permitted if the fair market value (FMV) of the vehicle exceeds specified base values on the first date the vehicle is made available to the employee. The IRS noted that it had already issued the cents-per-mile and FAVR values for 2019 for business and other uses (charitable, medical, etc.) in Notice 2019-02.

In Notice 2019-34, the IRS provided that the maximum value of an employer-provided vehicle (including cars, vans, and trucks) first made available to employees for personal use in calendar year 2019 for which the vehicle cents-per-mile valuation rule provided under Regs. Sec. 1.61-21(e) may apply is $50,400.

The maximum value of an employer-provided automobile (including vans and trucks) first made available to employees for personal use in calendar year 2019 for which the FAVR may apply is also $50,400.

Furthermore, the IRS intends to amend Regs. Sec. 1.61-21(e) to provide that if an employer did not qualify under Regs. Sec. 1.61-21(e)(5) to adopt the vehicle cents-per-mile valuation rule on the first day on which a vehicle was used by an employee of the employer for personal use because, under the rules in effect before 2018, the vehicle had an FMV in excess of the then-permitted maximum, the employer may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the maximum FMV of a vehicle for purposes of the vehicle cents-per-mile valuation rule set forth in Notice 2019-08 or Notice 2019-34.

The IRS is requesting comments on these changes by July 29.

— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.